Fannie Mae

WASHINGTON  The Office of Federal Housing Enterprise Oversight said late Friday it would not allow Fannie Mae (FNM :
Fannie Mae
 
  08/10/2007

FNM  to increase its portfolio beyond the $727 billion limit created in May 2006, despite arguments by the company and senior Democrats that a change would provide much-needed stability to the shaky mortgage market.
The agency's announcement comes after a tense week of public posturing in Washington. Several major mortgage companies have complained about difficulty selling loans to investors, and Fannie Mae said it could pump liquidity into this area.
But President George W. Bush countered in two separate press conferences that any changes to regulatory policy should come only after Congress completes a reform package that overhauls the way Fannie Mae and Freddie Mac  FRE :Freddie Mac are supervised.
Hours before Ofheo's announcement, Fannie Mae chief executive Daniel Mudd issued a public statement detailing why increasing Fannie Mae's portfolio size would help the market.
"We believe that a moderate increase in the range of 10% is appropriate given both current market conditions and the importance of prudent market practice," Mudd said. "We believe this action, in conjunction with actions taken by the Federal Reserve Board and others, would help to alleviate the ongoing credit crunch in the markets and bring an additional measure of stability."
Ofheo regulates the safety and soundness of Fannie Mae and rival Freddie Mac. Though Ofheo Director James Lockhart is a Republican and was appointed by the White House, the agency is independent and not typically viewed as openly political.
Fannie Mae's portfolio was capped at $727 billion in May 2006, when the company was fined $400 million for massive accounting and management failures. Lockhart has said the cap will only be removed after Fannie Mae returns to timely reporting of its financial statements and makes other improvements in its internal controls. Fannie Mae has not yet filed timely reports, though Lockhart has said the company is making progress.
As of June, Fannie Mae held $722 billion in its mortgage portfolio. A 10% increase would have allowed the company to hold close to $800 billion. Fannie Mae's portfolio peaked in size in October 2004, when it held $913 billion.
Minutes before Ofheo's announcement, Senate Banking Committee Chairman Christopher Dodd, D-Conn., issued a statement saying the Bush administration should rethink its decision on limiting the portfolios held by Fannie Mae and Freddie Mac.
"The President needs to immediately reconsider his ill-advised position that he won't even consider the possibility of easing GSE credit caps, provided it is done in a safe and sound manner by regulators, until there is statutory reform," Dodd said. "I believe that both can be done and the administration shouldn't use that as an excuse for doing nothing."